Ian Cowie was named Consumer Affairs Journalist of the Year in the
London Press Club Awards 2012. He has been head of personal finance at
Telegraph Media Group since 2008, having been personal finance editor
since 1989. He joined the paper in 1986. He is @iancowie on Twitter.

What price a guaranteed income for life?

It’s a brave – or foolish – man who takes on what I called in this space last week the “unholy alliance of life companies profiteering from annuities and HM Revenue & Customs control freaks”.

I was speaking in favour of Shadow Chancellor George Osborne’s proposal to abolish current HMRC rules which force savers to spend at least three quarters of their pension fund by the time they reach 75 on a guaranteed income for life, called an annuity. I pointed out that annuity yields are very low and that we should be granted more freedom about how we spend our savings, rather than being compelled to irrevocably transfer them to an insurance company.

But this is a multi-billion pound cartel which generates massive profits for providers and millions in commission for middlemen. They are in no rush to see consumers granted greater choice – including the option of hanging on to their own cash.

So perhaps I should not have been surprised to receive the email below from a well-respected independent financial adviser. It said: “Dear Ian, Neither you nor George Osborne have the appropriate qualifications to make the statement that you do regarding the obligation of those with pension plans to buy an annuity.

“It is, without doubt, people like yourself, who do not understand annuities nor the guarantees that they offer: security in its purest form. If somebody dies you want them to have their money back, if they live you want them to have full value for money, in other words, ‘you want your cake and eat it too’. The unpalatable truth Ian is, that you cannot. It is impossible.

“Over the last 39 years as a Financial Planner and Life Assurance & Pension specialist, I and my colleagues have witnessed first hand what people want, and that is, guarantees. What they need is also guarantees and what they get is obfuscation from delirious know-alls, most of whom who work for the Consumers Association and yourself and other journalists of your ilk.

“It really is about time that financial journalists had qualifications and experience to match the huge effect that their ill founded words have on those who regulate and formulate the pensions industry in the United Kingdom – none of whom are (sic) qualified individuals.

“Annuities provide guarantees. Guarantees cost money and there is no way to avoid them. Believe me, my colleagues and I have seen it all and assessed most of it. Only the wealthy who do not need pensions, argue against annuities.
Kind regards etc…”

To which I replied: “Dear Terence, If annuities are such a good deal, why do you need compulsion to market them?

“With regard to your comments about qualifications, you do not need to be an insurance salesman to criticise the life assurance industry. Indeed, an independent outside view can often be more objective.

“For example, we would never have known about the scandal at Bristol Royal Infirmary if we had waited for doctors to tell us. Similarly, we would never have found out about MPs’ expenses if we had relied on MPs for our news coverage of Parliament.

“There is an important public service to be provided by genuinely independent intermediaries, you know. As for the value of insurance company guarantees, you should hear what the victims of Equitable Life have to say!”

Perhaps the serious point about this knock-about is that it may stimulate debate on an important point of public interest when, to paraprhase William Whitelaw, it would be easy to go around stirring up apathy about annuities. Perhaps I am wrong to buy shares for my Self Invested Personal Pension (SIPP) when it might prove better to lock into today’s meagre annuity yields. They might look attractive if interest rates fall further in future. But I doubt it. As they used to say in the City, two views make a market.